Both Beijing and New Delhi have restricted cryptocurrency, imposing the toughest restrictions on decentralized digital assets of any major economies. While there are some key differences in the nature of the restrictions they have imposed and their severity, in a nutshell, both the Chinese and Indian central banks see cryptocurrencies as threats to monetary sovereignty. They both want to assert control over digital monetary flows and see a central bank digital currency (CBDC) as the best way to do so.
The fact that most stablecoins are US dollar-backed give both Beijing and New Delhi pause. “We have to be very careful about allowing these sorts of instruments. From the past experience in other countries, it is an existential threat to policy sovereignty,” RBI Deputy Governor T Rabi Sankar said in July 2023. “If large stablecoins are linked to some other currency, there is a risk of dollarization.”
Rather than focusing on stablecoins for payments, it would be better for countries to each have their own CBDC and then “create a mechanism by which the CBDCs can interface and transact with each other,” he added.
That sounds a bit like the China-led mBridge project, which also includes Hong Kong, Thailand, the United Arab Emirates and Saudi Arabia. If China-India relations continue to improve, the possibility of New Delhi joining mBridge cannot be ruled out.
In China’s case, it is true that Layer one blockchain Flare and decentralized cloud infrastructure company Red Date Technology recently announced two trials that will allow mainland Chinese residents to buy stablecoins issued by virtual asset company IDA in Hong Kong. The first trial will allow for anonymous registration on a regulated stablecoin app and the other will facilitate the purchase of tokenized financial products with the stablecoin.
Yet mainland Chinese will not through these trials to be permitted to buy major USD-backed stablecoins like Tether and Circle, bringing into question the utility of the exercise.